Template-Type: ReDIF-Paper 1.0
Author-Name: Michael Brei
Author-X-Name-First: Michael
Author-X-Name-Last: Brei
Author-Name: Leonardo Gambacorta
Author-X-Name-First: Leonardo
Author-X-Name-Last: Gambacorta
Author-Name: Marcella Lucchetta
Author-X-Name-First: Marcella
Author-X-Name-Last: Lucchetta
Author-Name: Marcella Lucchetta
Author-X-Name-First: Bruno Maria
Author-X-Name-Last:  Parigi
Title: Bad bank resolutions and bank lending
Abstract: The paper investigates whether impaired asset segregation tools, otherwise known as bad banks, and recapitalisation lead to a recovery in the originating banks' lending and a reduction in non-performing loans (NPLs). Results are based on a novel data set covering 135 banks from 15 European banking systems over the period 2000-16. The main finding is that bad bank segregations are effective in cleaning up balance sheets and promoting bank lending only if they combine recapitalisation with asset segregation. Used in isolation, neither tool will suffice to spur lending and reduce future NPLs. Exploiting the heterogeneity in asset segregation events, we find that asset segregation is more effective when: (i) asset purchases are funded privately; (ii) smaller shares of the originating bank's assets are segregated; and (iii) asset segregation occurs in countries with more efficient legal systems. Our results continue to hold when we address the potential endogeneity problem associated with the creation of a bad bank.
Length: 41pages
Creation-Date: 2020-01
File-URL: https://www.bis.org/publ/work837.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work837.htm
File-Format: text/html
Number: 837
Classification-JEL: E44, G01, G21
Keywords: bad banks, resolutions, lending, non-performing loans, rescue packages, recapitalisations
Handle: RePEc:bis:biswps:837